Windows 10 won’t save the PC, but this might

[steven36]

Microsoft Corp.’s Windows 10 launch won’t be the savior the PC industry is seeking — but the death of Windows 7 in a few years might be.

The company’s unprecedented decision to offer the Windows 10 upgrade free-of-charge to consumers and some businesses helps solidify Microsoft MSFT, -0.38% as a cloud software company. The software’s ability to work seamlessly across multiple devices plays well in an always-connected cloud-computing world, and the fact that it’s free may entice some people to upgrade their operating system sooner, rather than waiting to buy new, compatible hardware.

“It creates software consistency between all devices Microsoft is trying to address,” Edison Investment Research Richard Windsor said, making it akin, but perhaps even better than, Apple Inc.’s AAPL, -0.87% operating systems.

However, “it’s not going to drive PC sales at all,” Windsor said, at least in the near term. That’s because machines operating on Windows 7 are also compatible with Windows 10, meaning consumers will likely try out the system on their existing hardware before rushing to buy new, expensive tablets and computers.

“(Windows 10 is) not going to drive PC sales at all.” Richard Windsor, Edison Investment Research

“The primary purpose of releasing Windows 10 isn’t to drive new devices,” said Chris Woodin, director of Microsoft Sales Operations at IT solutions provider Softchoice. “The primary purpose is to transform the desktop platform very long-term and enable much more cloud interaction.”

With enterprise customers making up 45% of the total PC market, according to industry tracker IDC’s estimates, it will be businesses’ refresh in a few years — around when Microsoft pulls extended support for Windows 7, planned for January 2020 — that really moves the needle. Windows Vista will die earlier, with support scheduled to end in April 2017, but too few businesses adopted that much-maligned operating system to move the needle.

“We expect a solid enterprise refresh between 2018 and 2019, when extended life support of Windows 7 is ending,” said Rajani Singh, senior research analyst with IDC’s U.S. quarterly PC tracker and personal computing programs.

This happened last year, when Microsoft pulled support for Windows XP. In Western Europe, the demise of Windows XP was “one of the main driving forces” in enterprise thin-client shipments, according to IDC. It also sparked demand in “mature commercial markets,” where commercial refresh projects “received a last push from the impending end of Windows XP support,” IDC said. In April 2014, IDC said world-wide PC shipments declined by a better-than-expected 4.4%, partially because of XP, while desktop shipments grew a slightly stronger-than-expected 3.5%.

Something the PC industry can be optimistic about, however, is that Windows 10’s new features — ranging from gesture control and touch-screen functionality to the ability to stream virtually any Xbox game to a PC or tablet — might drive some pent-up consumer demand for top-of-the-line devices.

“Once people get more familiar with how they can have a better experience with Windows 10 by using new hardware, I think it actually will boost hardware sales,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

It helps that the existing PC installed base has aged, with people using their cash to buy tablets instead of PCs after the tablet became popular in 2010. IDC estimates that the total PC installed base is 1.9 billion, and Moorhead says up to 600 million of those PCs have been in use four years or longer.

Now, tablet shipments are declining, and the disappointing launch of Windows 8 in 2013 — which was blamed for one of the largest declines in PC shipments ever — means there may be pent-up demand for new devices, according to Singh.

“People are, in a way, turning back to PCs,” Singh said. “If a new operating system comes along with great features, which Windows 10 has, that can fundamentally help the PC market.”

Last month, IDC said world-wide PC shipments fell 11.8% in the second quarter, which it blamed partially on tough year-over-year comparisons related to the XP demise. It continues to expect “low to mid-single digit declines in volume” in the second half of the year despite the Windows 10 launch, predicting that many users opt for a free OS upgrade rather than buying new PCs.

Shares of Microsoft rose 1% to $45.83 in Wednesday morning trade. They are down about 6.6% in the last three months, underperforming the broader Dow Jones Industrial Average, which is down 2%.

Source